Process Flow Measures Flashcards

1
Q

Three Key Performance Measures:

A
  • Flow Time: total time spent by a flow unit within process boundaries
    • It may include the time the flow unit undergoes an activity or/and waiting in a buffer
    • It varies from one flow unit to another
  • Flow Rate: the number of flow units that flow through a specific point in the process per unit of time
    • It may change over time
    • The instantaneous flow rates at time t is denoted by R(t) (Ri(t) for input flow and Ro (t) for output flow rate)
  • Inventory: the total number of flow units present within process boundaries.
    • It is denoted by I**(t)
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2
Q

Inventory Dynamics:

A
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4
Q

Little’s Law:

A

In a stable process, we have the following relation between the average flow time T, the average inventory I, and the throughput R

I = RT

Average Inventory = Throughout × Average Flow Time

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5
Q

Stable Process:

A
  • Stable Process is process in which the capacity of the process is l_arger than or equal_ to its average inflow rate in the long-run.
    • Above implies that in a stable process the average outflow rate is the same as the average inflow rate in the long-run.
  • Throughput: In a stable process, we refer to the average inflow or outflow rate as the average flow rate or throughput, and denote it by R.
    • Throughput is in fact the average number of flow units that flow through the process per unit of time.
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7
Q

Little’s Law Managerial Insight:

A
  • Of three operational measures of performance, a process manager need only focus on two measures.
  • For any given level of throughput, the only way to reduce flow time is to reduce inventory and vice versa
    • One can analyse financial statements by considering the flow of a dollar through corporation and using the Little’s law.
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8
Q

Cash Cycle:

A
  • Cost to Cash Cycle: (average) time between cost dollars being invested and cash dollars collected.
  • Cash to Cash Cycle: similar, but nets out lag time in AP
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9
Q

Inventory turns =

A

Inventory turns (or turnover ratio): shows how many times the inventory is sold and replaced during a specific period.

  • In accounting it is defined as:

Inventory Turns = (Cost of Goods Sold) / (Average Inventory)

  • In fact, it is

Inventory Turns = R/I

  • but by Little’s Law

Inventory Turns = R / (T×R) = 1/T

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